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The Australian Competition & Consumer Commission (ACCC) has initiated legal proceedings against Woolworths Group Ltd (ASX:WOW) and Coles Group Ltd (ASX:COL), accusing the supermarket giants of deceptive discounting practices on a range of everyday products. The ACCC alleges that both companies engaged in misleading conduct under Australian Consumer Law by presenting misleading price drops to customers.
According to the ACCC, Woolworths and Coles applied "misleading discount pricing claims" on hundreds of products, leading customers to believe they were receiving genuine discounts when, in fact, the prices had been artificially inflated. The focus of the legal action is on products that maintained long-term regular pricing, with no significant price adjustments for at least six months, and in some cases, for as long as a year.
Both retailers reportedly increased prices on these products by at least 15% for short periods. Following this, the products were included in Woolworths' 'Prices Dropped' campaign and Coles' 'Down Down' campaign, at prices lower than during the brief price hike but often the same as, or higher than, the original long-term prices.
ACCC’s Allegations of “Illusory Discounts”
ACCC Chair Gina Cass-Gottlieb stated that the discounts offered by the retailers were not genuine and that the price reductions were “illusory” in nature. The ACCC further claims that Woolworths and Coles had premeditated plans to include these products in their respective promotional campaigns even before the price increases occurred. According to the ACCC, the price hikes were carried out to create a higher reference price (the "was" price) to make the subsequent promotions appear more appealing to consumers.
The legal action spans a significant timeframe, with the alleged misleading conduct involving 266 products at Woolworths over 20 months and 245 products at Coles over a 15-month period.
Investigation and Consumer Impact
The ACCC’s investigation into the pricing practices was initiated after numerous consumer complaints and was supported by the agency's monitoring of social media and its use of compulsory investigative powers. It is estimated that Woolworths and Coles collectively sold tens of millions of these products, earning substantial revenue in the process.
The allegations raise broader questions about transparency in the pricing strategies employed by the country’s largest supermarket chains. Given the scale of the promotions, the ACCC is pursuing legal remedies that could lead to penalties, declarations, and costs. In addition, the regulator is seeking an order that would require both companies to fund a registered charity dedicated to providing meals to Australians in need. This requirement would be above and beyond the existing charitable meal delivery programs already supported by Woolworths and Coles.
Legal and Financial Implications for Woolworths (ASX:WOW) and Coles (ASX:COL)
The Federal Court case will potentially have significant ramifications for Woolworths and Coles, not just in terms of financial penalties but also in terms of consumer trust and brand reputation. Both companies face penalties that could impact their financial standing and operations, as the ACCC aims to hold them accountable for their alleged actions.
As this legal battle unfolds, scrutiny surrounding pricing practices in Australia’s retail sector is likely to intensify. Given that both Woolworths and Coles dominate the supermarket industry in Australia, this case may prompt further regulatory oversight and consumer advocacy efforts aimed at ensuring transparency and fairness in pricing practices across the sector.
By targeting the country's two largest supermarket chains, the ACCC aims to send a strong message about the importance of fair pricing and the need for businesses to maintain transparent and ethical pricing strategies. The outcome of this case could set a precedent for future actions involving misleading pricing claims in the retail sector.
Bottomline
The ACCC's legal action against Woolworths and Coles highlights the need for greater transparency in promotional pricing. The claims of artificially inflated prices followed by illusory discounts reflect broader concerns about fair pricing in Australia’s retail landscape. The court’s decision in this case will likely have far-reaching consequences for the industry, as consumer trust and the integrity of promotional campaigns are called into question.
